Question

Exercise 21-16 Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Sandhill Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $515,200, its carrying amount is $401,900, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017. The amount of deferred revenue to be reported $

(b) On December 31, 2017, Teal Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sales price of the machine was $477,700, the carrying amount is $420,300, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one year is $35,000. At December 31, 2017, how much should Teal report as deferred revenue from the sale of the machine? The amount of deferred revenue to be reported $

(c) On January 1, 2017, Flint Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Flint leased back the plane for 10 years. The sales price of the airplane was $498,300, the carrying amount $375,100, and the annual rental $73,904. Flint Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. How much gain on the sale should be reported at the end of 2017 in the financial statements? The gain on the sale should be reported $

(d) On January 1, 2017, Buffalo Co. sold equipment with an estimated useful life of 5 years. At the same time, Buffalo leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $214,700, the carrying amount is $303,000, the monthly rental under the lease is $6,100, and the present value of the rental payments is $116,494. For the year ended December 31, 2017, determine which items would be reported on its income statement for the sale-leaseback transaction. $ $

Answer 1

1	Computer equipment was sold and leased back
	Lease term	10 years
	selling price	$        515,200
	Carrying amount	$        401,900	Estd economic life		12 yrs
	Note: the excess sale price over the carrying amount is the deferred income
	Deferred Income = Selling price - Carrying amount
	= 515200-401900	= 113300
	This deferred income is recognised over lease term ie., 10 years
2	Teal Co., sold machine to Cross Co., and then leased back.
	Sale price	$477,700
	carrying amount	$420,300	Estd life 14 years
	PV of rentalpayment p.a.	$35,000
	Deferred Income = Selling price - Carrying amount
	= 477700-420300	57400
	Teal should report $57400, as the deferred revenue
3	Gain on sale should be recognised as deferred income.
	Flint corp sold and leased back airplane for 10 years
	Sale price of the plane	498300
	Carrying amount of plane	375100
	Theefore, Gain on sale	= 498300-375100 = $123200
	(This gain on sale is the deferred income.)